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US Startups Aren’t Creating Jobs Like They Used to
From “Where Has All The Skewness Gone? The Decline In High-Growth (Young) Firms In The U.S.” by Ryan Decker, John Haltiwanger, Ron Jarmin, and Javier Miranda:
There is now robust evidence, from multiple data sources using a variety of indicators, of a pervasive decline in U.S. business dynamism over the last several decades. … Declining business dynamism can be the outcome of efficient responses to changing tastes and technology as has been occurring in the retail sector.
However, the post-2000 decline in dynamism, driven largely by smaller contributions to job growth of young high-growth firms, may be more troubling. Evidence shows that high-growth young firms have disproportionately accounted for job creation and productivity growth. The pattern for the U.S. used to be that in any given year, most newly entered firms would fail while a few would grow very fast. These high-growth young firms yielded substantial skewness in the firm growth rate distribution. Now the U.S. has a much lower pace of startups, and those that do enter are less likely to be high-growth firms. Thus, startups and high-growth young firms contributed less to U.S. job creation in the post-2000 period than in prior periods.
Two (at least) explanations are offered. First, maybe high-growth firms today grow by adding machines rather than men. Second, maybe more young innovative firms are being acquired rather than growing on their own. From the paper: “If these changes in firm dynamics are at work, declining skewness may matter less for productivity growth but still be of critical importance for job growth.”
Published in Culture, Education
See, there’s no empirical evidence to suggest that 7 years of an unchecked regulatory orgy has anything to do with a sluggish economy! – say all Progressives.
I think technology probably does play a part in the lack of growth here. But I’ve got to agree with EJHill as well. An overabundance of regulations has to play a role as well. There’s no way it doesn’t.
Seems very obvious that there are some long term trends at work here changing the dynamics of the economy. Technology driving increased productivity without increased job growth is certainly a contributing factor, but it’s hard to know if it’s 80% of the issue or 0.8% – most likely something in the middle. I also agree with EJHill: growth of the regulatory state has to be a contributing factor.
Let me add two more factors. Decades of terrible education results for 40% of the population has to drag down productivity and employability. Finally, the growth of government means that a smaller and smaller proportion of the economy and workforce has to continue bearing the burden of growth. 65 years ago, 80% of the economy was private sector, and now it’s only 60%.
My bet is that all of these trends are contributing factors, and if it weren’t for American ingenuity and the advantages of the benefits that technology confers, we’d be much worse off.
This has been the experience of my own business. Capital equipment that can manufacture electronics is cheap compared to even a decade ago, and it’s getting better every year. We run with just 14 people but churn out what would have taken 30 to do in the 90s. 1 guy on 1 shift can man an entire line, but he has to be skilled and very knowledgeable to do it.
Also true. Innovation at larger firms is difficult, as often as not due to their own stifling atmospheres. So they do the next best thing: buy the new guys. Several of my larger competitors have solicited us over the years, hoping to fold our products into their brands, but of course they would eliminate our little facility and move everything to Mexico or China to do it, negating any jobs we’ve added.
Obamacare?
It’s certainly a coincidence that a great number of Federal and state regulations kick in when the 50th employee is hired…
Anyone who starts a company that actually has employees is a first class idiot. We have technology and services today that alleviate the need for pretty much all things which used to require payroll positions.
You can buy any service, from manufacturing to patent law, to cleaning the office. Why would any sane founder want employees?
Employees bring regulation, oversight and bureaucrats.
If you want to command thousands of employees, go work for the government, the only business that still uses that model.
I save money buying expensive capital equipment and having a few people to run it and sell the goods. I could contract out for more than I do, but I ran the numbers and I am ahead as long as I stay small.
I had a cheese supplier that automated his plant and went from 65 employees to 4 maintenance men and two truck loaders.
These things are hard to measure. If something doesn’t exist, needless to say, it’s difficult to prove why. So one must use common sense, cross country comparisons and perhaps a dummy variable or two. The common sense is that the regulatory burden, arbitratry governance, anti business rhetoric create uncertainty that impacts expected returns new entrepreneurs face, real returns that small and new business face and crony capitalism gives big old firms a leg up. It probably explains all of it. Even technological change and takeovers reflect the struggle small business faces. The only question is whether its just drift and corruption or if this bunch seeks stagnation so that monetizing the debt does not cause a spike in interest rates or inflation and is supported by big business to reduce competition from upstarts.
It is hard to start a company up when all layers of government, federal, state, county, city/town are basically against it and mainly views companies as potential shakedown clients or entities to be destroyed in order to protect political cronies.
Example 1: Building inspectors.